the value of a telecommunications network is is proportional to the square of the number of connected users of the system (n²)

suggesting “that cryptoassets that have reached critical mass behave like online social networks such as Facebook with their value defined by their usage (as measured by daily transactions or active addresses”.

Which again, is not the same as valuing the dApps themselves, but the network at large.

In 2018 we’ve seen smart contract protocols raise large amounts of capital without having the network to support that valuation.

Auger is now infamous for spiking at launch, the surfacing of assassination markets, and then coasting at 30-150 daily active users, leading to great speculation of how to properly value the market cap of the network.

Sheng touched on an important point by bringing up customer acquisition cost (CAC) and the implications within cryptocurrency development.

Protocols and dApps are raising large amounts of money to acquire scarce resources (developers, users) that are too scarce to support their efforts. So the Lifetime Value (LTV) of those resources is lower than the CAC, leading to a capital death spiral.

Because of the pressure to maintain some kind of ideal token valuation, those projects can’t slow down to drive CAC at a lower cost and simply work toward flame out in order to maintain investor relations.

Where does the LTV-CAC equilibrium come from? Rational valuations and raises for a start.

I’ve already started seeing a few companies waiting to get end users first before raising money. It’s a reposition back to a traditional startup growth model that feels intuitive yet slightly out of tune with the technology and cultural shifts that underlie cryptocurrency networks.

The killer dApp will find a sustainable equilibrium and will provide a model for others to replicate. Then mainstream adoption is no longer if or when, but happening.